How to Start a Cigar Shop: Cost and Legal Requirements

Important points to remember when setting up your cigar shop:

1. Tobacco retailer’s license — Secure a tobacco retailer’s license from your state and local authorities. This typically involves background checks and compliance with specific regulations.
2. Alcohol license — If you plan to serve alcohol in your cigar lounge, obtain the necessary liquor licenses.
3. Choosing a location — Select a location with adequate space for displaying cigars, a smoking lounge (if applicable), and storage.
4. Humidors — Invest in quality humidors to properly store cigars and maintain their freshness. This includes both display humidors for the sales floor and larger storage humidors for inventory.
5. Sourcing products — Establish relationships with reputable cigar manufacturers and distributors to source a diverse range of cigars and accessories. Consider offering exclusive brands and limited editions to attract enthusiasts.
6. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
7. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
8. Service variety — Offer a range of cigars and accessories to cater to different customer preferences, such as premium cigars, budget-friendly options, and unique accessories.
9. Delivery services — Offer delivery services to expand your customer base and provide convenience. Implement a reliable system for online orders, packaging, and shipping to ensure products arrive fresh and in excellent condition.

You May Also Wonder:

Is a cigar shop profitable?

A cigar shop can be very profitable. You need a convenient location, good product offerings, and a marketing strategy to be successful.

What is the growth potential of a cigar shop?

You can grow your revenue by adding new products to sell. You can also expand to new locations, or even franchise your shop.

What type of business is a cigar shop?

A cigar shop is considered a tobacco shop which is NAICS code 453991. In more general terms, it’s a retail business.

Can you start a cigar shop on the side?

If you have limited hours, you can have a cigar shop as a side hustle, but you probably wouldn’t make much money. It’s better to run a cigar shop as a full-time business.

Step 1: Decide if the Business Is Right for You

Pros and cons

Cigar shop industry trends

Industry size and growth

• Industry size and past growth – The U.S. cigar industry is worth $12.7 billion in 2023.((https://www.statista.com/outlook/cmo/tobacco-products/cigars/united-states))
• Growth forecast – The U.S. cigar industry is projected to grow 4.54% annually through 2027.

Trends and challenges

Trends

• Cigar smoking is expected to grow in popularity with millennials.
• Cigar smokers are increasingly purchasing high quality and uniquely flavored cigars.

Challenges

• Regulations on tobacco products are constantly tightening which could threaten cigar shops in the future.
• Cigar shops are facing increased competition from online cigar sales.

How much does it cost to start a cigar shop business?

Startup costs for a cigar shop range from $60,000 to $115,000. Costs include space rental and preparation, inventory, and an operating budget. 

You’ll need a handful of items to successfully launch your cigar shop business, including: 

• Shelving
• Humidors
• Checkout counter
• POS system
• Lounge furniture (optional)
• Cutters and lighters (optional)

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$100 - $500	$300
Business licenses and permits	$500 - $1,000	$750
Insurance	$100-$500	$300
Website	$200 - $1,000	$600
Space rental	$2,500 - $5,000	$3,750
Store preparation including humidors	$25,000 - $50,000	$37,500
Operating budget	$10,000 - $20,000	$15,000
Marketing budget	$500 - $1,000	$750
Inventory	$25,000 - $35,000	$30,000
Total	$63,900 - $114,000	$88,950

How much can you earn from a cigar shop business?

What you charge for cigars and other items will vary based on the types. These calculations will assume and average sale per customer of $30. Your profit margin should be about 30% after all costs.

In your first year or two, you might get 25 customers a day, bringing in $273,750 in revenue. This would mean $82,125 in profit, assuming that 30% margin. 

As you gain traction, you might get 50 customers a day. With annual revenue of $547,500, you’d make a tidy profit of $164,250.

What barriers to entry are there?

There are a few barriers to entry for a cigar shop. Your biggest challenges will be:

• Funding the startup costs
• Competing with online cigar sellers

Step 2: Hone Your Idea

Now that you know what’s involved in starting a cigar shop, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research could give you the upper hand even if you’ve got the perfect product. Conducting robust market research is crucial, as it will help you better understand your customers, your competitors, and the broader business landscape.

Analyze your competitors 

Research cigar shops in your area to examine their products, price points, and customer reviews.

• Make a list of cigar shops that offer similar products. 
• Review your competitors’ products – their features, pricing, and quality – and marketing strategies
• Check out their online reviews and ratings on Google, Yelp, and Facebook to get an idea of what their customers like and dislike.
• Identify your competitors’ strengths and weaknesses. 

This should identify areas where you can strengthen your business and gain a competitive edge to make better business decisions.

Why? Identify an opportunity

You’re looking for a market gap to fill. For instance, maybe the local market is missing a cigar shop that sells a particular cigar or rare cigars, or a cigar lounge that hosts cigar clubs.

You might consider targeting a niche, such as premium cigars. This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products

In addition to cigars, you could offer cigarettes, cigar related items, bags of tobacco, or even anything that you can find in a full blown smoke shop. 

How much should you charge for cigars?

Prices should be based on market prices, but also on your costs to purchase the cigars. 

Once you know your costs, use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Cigar smokers tend to be millennials and older, so you should focus your marketing on Instagram and Facebook. 

Where? Choose a cigar shop location

You’ll need to rent out a storefront. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Cigar Shop Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “cigar shop” or “tobacco shop”, boosts SEO
• Name should allow for expansion, for ex: “SmokeExpand Emporium” and “LegacyLeaf Collections” over “HavanaHaven Boutique” and “StogieSanctuary”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation. 

Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward. 

Step 4: Create a Cigar Shop Business Plan

Here are the key components of a business plan:

• Executive Summary: Summarize the vision and mission of your cigar shop, highlighting its unique offerings and target market.
• Business Overview: Provide a concise description of your cigar shop, including its location, the types of cigars and related products you’ll sell, and the ambiance of your store.
• Product and Services: Detail the range of cigars and related products you’ll offer, such as premium cigars, accessories, cigar lounges, and expert recommendations.
• Market Analysis: Analyze the demand for cigars in your area, considering factors like demographics, local preferences, and trends in the tobacco industry.
• Competitive Analysis: Identify competitors in the cigar retail market and emphasize what sets your shop apart, such as exclusive cigar selections or exceptional customer service.
• Sales and Marketing: Outline your sales strategies, including pricing, promotions, and marketing efforts to attract cigar enthusiasts and build a loyal customer base.
• Management Team: Introduce key team members with expertise in the tobacco industry, highlighting their knowledge of cigars and customer service skills.
• Operations Plan: Describe the day-to-day operations of your cigar shop, including inventory management, customer interactions, and any events or tastings you plan to host.
• Financial Plan: Present financial projections, including startup costs, revenue forecasts, expenses, and profitability estimates for your cigar shop.
• Appendix: Include images of your cigar selection, testimonials from satisfied customers, and any partnerships with cigar manufacturers or distributors that enhance your credibility.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to cigar shops. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your cigar shop will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts. Here’s how to form an LLC.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation. Read how to start a corporation here.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a cigar shop business. You might also try crowdfunding if you have an innovative concept.  

Step 8: Apply for Cigar Shop Business Licenses and Permits

Starting a cigar shop business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You’ll need a tobacco license and may be required to have other industry specific licenses at the state and local levels. 

You may also need other state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your cigar shop business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

You may want to use industry-specific software, such as Bepoz, LINGA, or KORONA, to manage your inventory, purchases, and sales. 

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Create a website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. 

Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now” or “Order”. This can sharply increase purchases. 

Marketing

Here are some powerful marketing strategies for your future business:

• Curated Events and Tastings: Host cigar events and tastings to create a unique experience for customers, allowing them to sample new products, learn about cigar pairings, and build a sense of community around your shop.
• Local SEO — Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Loyalty Programs: Implement a loyalty program that rewards customers for repeat business, offering discounts, exclusive access to limited editions, or free accessories based on their purchase history.
• Social Media Engagement: Leverage social media platforms to showcase your products, share cigar-related content, and engage with your audience. Create visually appealing posts that highlight the craftsmanship and atmosphere of your shop.
• Educational Content: Develop informative content through blogs, videos, or workshops that educate customers on the art of cigar smoking, different blends, and proper storage techniques, positioning your shop as an authority in the industry.
• Strategic Partnerships: Collaborate with local businesses such as restaurants, bars, or whiskey distilleries for cross-promotional opportunities, expanding your reach and attracting diverse clientele.
• Cigar of the Month Club: Launch a subscription service that delivers a carefully curated selection of cigars to customers’ doors each month, creating a steady stream of income and encouraging long-term customer relationships.
• Themed Nights: Host themed nights or evenings, such as poker nights or live music events, to provide entertainment and give customers a reason to visit your shop regularly.
• Influencer Collaborations: Partner with influencers or local personalities who appreciate cigars to promote your shop. Their endorsement can significantly boost your shop’s credibility and attract a broader audience.
• VIP Memberships: Introduce VIP memberships that offer exclusive perks, such as access to private events, early product releases, and personalized recommendations, creating a sense of exclusivity and enhancing customer loyalty.
• Window Displays and Aesthetic Appeal: Invest in eye-catching window displays and create an inviting in-store atmosphere that reflects the sophistication and uniqueness of your cigar offerings, enticing passersby to step inside.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your cigar shop meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your cigar shop business could be: 

• Premium cigars at the best prices
• Lounge with fellow cigar aficionados and smoke premium cigars
• Looking for rare cigars? We have what you’re looking for

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a cigar shop business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in cigar shops for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in cigar shops. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

You will likely need workers to fill various roles. Potential positions for a cigar shop business include:

• Store Clerks – customer service, make sales
• Marketing Lead – create and implement marketing strategies
• General Manager – accounting, scheduling, inventory management

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Cigar Shop – Start Making Money!

The popularity of cigars is growing, as is the size of the cigar industry. Cigar shops are great places for cigar aficionados to unite, and your own shop could be very profitable for you. It takes an investment to get started, but you should earn a healthy return on that investment over time.

You’ve got the business savvy now, so you’re ready to light up your community with your own successful cigar shop!